State Auditor Hector Balderas and independent auditing firm Harshwal and Company had some harsh words when it came to the city of Española’s 2010 audit.
In a July 9 letter written to Balderas, Mayor Alice Lucero, and the City Council included with the city’s audit, Harshwal states the city “did not maintain sufficient internal controls and/or adequate accounting records.”
Harshwal spotlighted the city’s lack of control over the cash transactions on the general ledger. According to the letter, the city didn’t provide a reconciliation of all of its bank and investment accounts. Harshwal maintained that when management overrode the bank accounts, there were no controls to mitigate the risk of misappropriation or fraud.
Repeatedly Harshwal pointed out the absence of control and procedure when it came to the city’s accounting practices. Harshwal’s report found that the city did not properly report collectible balances, didn’t identify and record accruals and at the end of the year did not record the prior auditor’s journal entries.
Ultimately, Harshwal did not issue an opinion on the city’s 2010 fiscal year because they could not obtain enough information.
“Because of the significance of the matters described above, we were unable to obtain sufficient evidential matter to form an opinion regarding fair presentation of this information in relation to the basic financial statements taken as a whole,” the letter states.
In a letter from Balderas to Lucero, the state auditor was even more blunt in his assessment of the audit.
“Upon review of the City’s fiscal year 2010 audit report, I remain gravely concerned by the consistent inability of independent public accountant (IPAs) to opine on the City’s financial statements,” Balderas stated. “In the past five audit reports, including the fiscal year 2010 audit report, four different IPAs have issued disclaimers of opinion on every fund type of the City. Multiple troubling findings which the City has failed to correct, including numerous material weaknesses, also continue to be repeated within the fiscal year 2010 audit report.”
Balderas went on to remind the city that he had placed them on an “at risk” list in 2010, a title that has yet be to be lifted. According to the letter, Balderas had recommended that the city hire a private accounting firm to assist the city in managing their balances and transactions. He also chided city officials for submitting the audit almost three years after the deadline.
Balderas closed the letter by sternly warning the city that its accounting practices could not continue.
“The City’s continuing financial disarray and auditing problems is unsustainable,” he stated. “This troubling situation places taxpayer dollars at unacceptable risk and can no longer be tolerated. The City is hereby directed to take immediate corrective action to resolve prior year findings. Auditing standards provide that management, along with those charged with governance, bear the responsibility of making certain that all of the City’s financial statements and affairs are properly reported and that fraud does not occur within the City.”
The city council got the opportunity to discuss the auditor’s findings during a special finance board meeting on Monday.
According to administrative services director Joyce Sandoval, who presented the audit with Harshwal managing partner Sanwar Harshwal, most of the findings in the audit had been fixed by the 2011 fiscal year.
Sandoval said internal controls and financial records had improved across the board since the 2010 findings. Among the findings that had been fixed, Sandoval said the city’s bank accounts have been reconciled since the audit. Sandoval said when she was hired in 2010 the accounts hadn’t been reconciled in three years.
Summarizing the improvements the city has made in their accounting practices, Sandoval said that the 2010 audit should be the last to have troubling findings.
“We’re always going to have findings,” Sandoval said. “We’re human. But I don’t think we’re going to have the depth of findings that we’ve had before.”
Councilor Robert Seeds asked Lucero when the next audits would become available.
Lucero said the 2011 audit will be presented in November. After the 2011 audit, the city will switch auditors from Harshwal to White & Samaniego & Campbell, which will handle the audits from 2012 to 2014.
Because of the transition of auditors, Lucero said, the Council might not see a new audit until this time next year. Seeds said Lucero was a councilor on the finance committee when many of these findings occurred and thought it was convenient the council wouldn’t be aware of any financial mismanagement until after city elections.
Lucero countered by saying she had brought up financial mismanagement when she was a councilor and had hired a new city manager and administrative services director when she took office as mayor in response to that issue.
Ultimately, the council approved the audit on a vote of 7 to 1, with Seeds voting against it.